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FRM Part II · FRM Exam Part II · Introduction to Operational Risk and Resilience

A bank's board is reviewing its operational risk governance. Which of the following arrangements best reflects sound practice for the board and senior management?

The board should approve and periodically review the operational risk framework and appetite, while senior management implements it, ensures adequate resources, and establishes clear accountability across the three lines. The other arrangements remove board oversight or blur independence between lines.

  1. AThe board approves and periodically reviews the risk appetite and framework, while senior management implements it and ensures resources and clear accountability across the linesCorrect
  2. BThe board delegates approval of risk appetite entirely to the second line and receives no reports
  3. CSenior management sets the framework while internal audit owns the day-to-day controls to ensure independence
  4. DThe first line sets its own risk appetite limits with no reference to board-approved statements

Explanation

Sound governance has the board approve and review the framework and risk appetite, with senior management implementing consistently and ensuring accountability and resources. Delegating all approval, giving audit control ownership, or letting units set limits independently each breaks the governance structure.

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